Negotiate with the lender for a better Mortgage.

You don't always have to spend a lot to reduce your mortgage's interest rate.

Lucky homeowners can "modify" their mortgages, paying their existing lender a few hundred dollars in exchange for a reduced interest rate on the current loan.

Rates have been dropping. People have been refinancing. It doesn't hurt to ask for a modification. 

Loan modification is pretty painless. It's not like going through another closing, though it doesn't happen often because most big lenders, sells most of their mortgage loans on the secondary market. In that case, you may have to refinance the loan to get a lower rate.

If refinancing is your only option, don't automatically switch lenders. Shop first with your current loan provider. They might offer you streamlined refinancing, requiring less money, paperwork and time than other lenders require.

The difference between a modified mortgage and a streamlined refinancing lies in the length of the loan. When you modify a mortgage, you keep repaying the same loan. When you refinance, you start all over again with a new loan.

Let's say you have a 30-year mortgage and have been paying it for five years. If you modify the loan at a lower rate, you still have 25 years remaining on your mortgage. It's the same loan, at lower interest. On the other hand, if you refinance the mortgage, your old loan is paid off and you start off with a brand-new loan for the term you choose, whether it's 15, 20 or 30 years or some other period.

In practice, the line between modified and refinanced mortgages gets blurry. Some lenders call it a modification if you have an adjustable-rate mortgage and switch to another mortgage with the same lender.

Not every mortgage can be modified -- in fact, the majority can't. Most mortgage lenders don't hold onto your loan for long. They sell it to Fannie Mae, Freddie Mac or Ginnie Mae. The government-sponsored enterprise, in turn, bundles your mortgage with others to create a mortgage-backed security, which works somewhat like a corporate bond. Investors buy these securities.

You can no more change the interest rate on a securitized mortgage than a farmer can buy back his corn crop after it has been sold, stored in a grain elevator with other farmers' crops, loaded onto rail cars, and packed into sacks of cattle feed. Because you can't change the interest rate on a securitized mortgage, you can't get a modification.

If the lender sold your loan, don't despair. Ask if you can get streamlined refinancing. You pay fees for a streamlined refinancing, but the lender might not require a credit report or appraisal. Those two items alone can cost $350 or more. Appraisals usually take several days.

Bottom line: When hunting for a lower mortgage rate, call your loan servicer's customer-service number in the coupon book or monthly statement. Ask if current customers have any special deals available to them.